ISM-IICase 1, Submission by- Group 4

Q1. Some have argued that companies should spend less on IT and wait longer to invest in more mature technologies because IT is a commodity and

brings little competitive advantage. If this is the case how could these two banks justify their multi-billion dollar investments in IT?

HSBC● In 2001, $164 million spent on second-generation hsbc.com provided common presentation and browser capability to offer all bank’s

services to customers.● In 2002, bank launched Global Technology centre by off-shoring, saved $30 million, improved service projects and online banking. It served

1.2 million internet banking customers over 150 countries with 76,650,000 visits and 177,000 TV banking customers.● In 2003, spent $1 billion for coordination of comprehensive global credit card technology, leading to annual savings of $67 million.● In 2004 with launch of HSBCnet, bank provided range of transaction banking and treasury services to corporate and mid-level customers. ● In commercial banking, number of customers registered for commercial banking increased by 43% with launch of new e-banking platform in

2004. Investment also included development of Finance Corporation’s WHIRL credit card system.● In 2005, $1.1 billion spent due to increased activity supporting in new capabilities in Corporate, Investment Banking and markets.

Customers increased by 24% and 116% in online transaction volumes.● In 2005, 2G Innovative Business Solutions provided real time sales campaign activities and presented customers with personalized content

user-related images and pre-filled forms, raised US $5.7 billion and 25000 new online savings accounts.● In 2005, HSBC Direct : Direct banking and Savings scheme reached 343,000 customers with US $ 7.2 billion in deposits.● In 2006, Bank invested in updating its websites for serving additional features, personalized content and improve customer accessibility.

Personal Bank Services : IT investment enhanced targeting and analytical insights to better meet customer needs and drive sales growth. [40% growth in personal customer numbers to 16 million and 55% increase in online sales volume]

Citigroup● In 1997, the Citigroup came up with e-Citi to enhance financial and e-commerce solutions over internet with an investment of US$1 Billion.● In 1998, e-Citi commerce solutions were launched to offer electronic bill payments etc., in course of investment in people and technology.● By 2000, Citigroup achieved 800 million accounts online and adopted “Citi On the net” for improving its efficiency and delivering

convenience to its customers.● In 2006,Citigroup made few investments in order to access immediate liquidity and it reduced its data centers to achieve operational

efficiency● In 2009,Citigroup launched Citi-direct which is aimed to expand its US and global retail banking costumer base by bringing in 10 B $

Q2. How would you assess IT investment strategies at HSBC and Citigroup? Do they invest in IT primarily as a way of cutting costs and improving their

operational efficiencies, or do they invest strategically with a view to entrenching their competitive positions?

HSBC : Operational & Strategic Investments in IT ● In 2003, spent $1 billion for coordination of comprehensive global credit card technology, leading to annual savings of $67 million.● Executed “Manage for Value” strategy through e-commerce projects like internet gateway to allow merchants to authorize and accept

credit payments, enabled merchants to set up online storefronts, mobile banking for daily banking and share dealing.● Launched First Mondex Card : An electronic wallet to store money on a chip , a joint venture with Master Card.● Interactive Financial Services with IBM : offering multi-channel e-banking service.● Merrill Lynch HSBC : online banking and broking service for affluent customers, a joint venture with Merrill Lynch.● PayDirect from HSBC : Enabled secure online money transfers for customers with email address and bank account.● Investment in Customer Relationship Management System : Helped in providing additional intelligent services to customers.● HSBC Universal Banking System : Risk and credit control system to manage and implement group projects and provide consultation services

to meet local needs to keep up with the strategy of ‘World’s local bank’● 2G Innovative Business Solutions : Allows present customers with personalized content and pre-filled forms, raised US $5.7 billion.● First Bank to offer pre-approved online mortgages and introduced 2300 self -service terminals through HSBCnet. HSBCnet served corporate

and mid-market customers by providing transaction banking and treasury services.

Citigroup : Operational Investments in IT● Objectives of using technology: “Better serve clients and lower costs”● Citigroup used IT to enhance its organizational strengths & capture expert knowledge of its extensive international branch network ● US$750 million project initiated to integrate bank’s 60000 PCs and 2000 LANs worldwide into a common global network and systems

infrastructure● Launched e-Citi as centralized approach to e-commerce to create innovative products and services with assurance of trust, privacy and

security to pioneer electronic financial services solutions for businesses, governments and consumers

● Launched IT program to integrated Citibank systems into a standard global platform to cope with mergers’ demands, emergence of new Euro currency and reprogramming required for Y2K program

● Development of internet based administrative platform to support development in pension and mutual funds and capabilities’ expansion to provide clients with round-the-clock account information, research & email exchange with financial consultants

● Launched e-Citi Commerce Solutions in 1998 to offer electronic bill payment presentation, authentication and certification to big companies and government organizations

Citigroup : Strategic Investments in IT● Strategic Alliances with Netscape, AOL & Oracle to provide financial advice, news, research reports, interactive investment tools and offered

online banking, insurance and mortgage services● Introduces business-to-business e-commerce system (Citigroup Commerce) in Asia Pacific region● Allowed clients to open A/C and transfer money using mobile phones using trial service with Mobile One in Singapore● It accelerated its global growth in credit card business through 10 strategic acquisitions, reaching 100 million accounts in 2000 and provided

best-in-industry cost position● Rapid integration of CitiFinancial system with 750 former associates’ branches in US in 2000● Adoption of strategy- “Citi on the Net”; Internet units like e-Commerce,e-business and e-Capital Markets were created to empower

business lines and Internet Operating Group was created to drive corporate internet strategy and coordinate across various divisions● Creation of Citi.com to offer integrated services in areas of banking, brokerage and insurance● Introduced MyCiti.com to become the first global finacial institution to offer account aggregation● Made a strategic alliance with Microsoft Network and AOL to develop different online products in 2001● Year 2002- Launched new foreign exchange products,enhanced Citigroup Direct, created Global Transaction Services, Global Securities

services, upgraded CitiDirect Online Banking(in 90 countries)● Year 2004- Acquired Lava Trading, joint venture with Shanghai Pudong Development Bank(issued first dual card currency in China● Year 2006- Acquired Egg Banking Plc(leading online bank), launched Citibank Direct, biometric credit card services in Singapore and

biometric ATMs for microfinance customers in India

Q3. In general, how should companies go about assessing the value of their IT investments? In your assessment which of the two banks is cleverer in its

IT investments?

● The value added by IT investments are beyond increasing efficiency ,productivity or reducing cost ,the main idea is to increase the company’s scope and knowledge to compete in a constantly changing environment .This is achieved by providing valuable information when the organization requires it the most .

● To assess the value created or added by the IT investment the company must have a clear understanding of who the customers are, what are their most important values and requirements, how this value is provided to the customers in a sustainable way and the profits they wish to make by providing this value .To evaluate these requirements the business model and strategy adopted need to clearly defined, and they are designed complementing each other as well.

● Another important step is assessing the benefits of IT are through the value chain. By applying appropriate frameworks on the value chain, the intangible benefits of IT investment can be quantified. One such framework used by organizations is the BALANCED SCORECARD which provides a comprehensive view of the organizational performance .The scorecard divides the organization into 4 areas-financial performance, customer relationships, operational excellence and organizations ability to learn and improve.

● Traditional methods of assessing the value of investments are - comparing financial measurements such as ROI or TCO, and employing qualitative frameworks like IE (Information Economics).

● Employing AIAC framework for measuring IT payoff

The IT investments made by CITIGROUP have been identified comparatively superior to HSBC based on the following facts:● Citigroup had an integrated approach towards IT governance, using combination of packaged and customized software .The primary aim

was to adopt a global approach which takes care of the local conditions as well.● Whereas HSBC focussed on being perceived as the worlds local bank and promoting its regional technology services .● Citigroup provided customers a unified, group wide, standard technological platform, thereby providing integrated services in comparison

to the individual services provided by HSBC .● HSBCs IT strategy focussed on harnessing the power of new technology in improving efficiency whereas Citigroups main focus was on

better service and lower costs.